At the beginning of 2013, I listed my 1-bedroom apartment in San Francisco’s Mission District on Airbnb. In a previous life (New York, 2006), I had discovered how lucrative Airbnb’s model can be when I used Craigslist to sublease my studio apartment to pay off ~$20,000 in debt. By 2013, my financial situation had improved significantly. However, I wanted to try hosting again to get an insider glimpse into one of today’s most interesting Internet companies and update my own firsthand exposure to the space.
I have had a great experience as an Airbnb host. I traveled a lot in 2013, and Airbnb guests stayed in my place almost as many nights as I did. In total, I rented my apartment to 31 guests over 132 nights, netting almost enough ($22,319) to cover the entire year’s rent. (For those curious, I have compiled detailed numbers in a Google spreadsheet.) Each booking took about 30 minutes of my time to arrange, and I probably spent an additional 15 hours during the year on initial apartment setup, communicating with interested guests who didn’t book, and figuring out taxes. $22 thousand for 30 hours of work is compelling — and a big improvement from my Craigslist experience in New York.
Although hosting is easy, I believe that Airbnb should aspire to make it even easier. Imagine how common hosting would become if it were as simple as specifying the dates that you’ll be away. Imagine if even first-time hosts could simply “flip the switch” on Airbnb before going away for the weekend. It would be a boon to Airbnb’s growth. (I know it’s hard to believe Airbnb might grow faster.)
In this post, I focus on the three most tangible pain points I have experienced as a host, and I offer some tactical suggestions on how Airbnb could improve them right away. While not enough to fully achieve the “flip the switch” vision I describe above (for first-time hosts, improvements to the on-boarding experience are also required), these recommendations would greatly simplify renting for experienced hosts.
#1: Help set price
I rented my apartment for 132 of 179 nights it was available, for an overall occupancy rate of 74%. While this rate is pretty good (it compares favorably to hotels), I would like it approach 100%.
20 vacant nights (42% of all vacancies) occurred during November and December.
My nightly rate of $155, which had worked for all of 2013, was obviously too high. Unfortunately, I discovered this only after a string of uncharacteristic vacancies. In the second half of December, when I dropped my price to $140, I quickly booked up. Rather than learning my lesson the hard way, I wish that Airbnb had proactively suggested I drop my price at the beginning of November.
While it is difficult for individual Airbnb hosts to foresee changes in supply and demand in their markets, Airbnb is awash in data it could expose to help hosts set profit-maximizing prices (e.g., price indices and occupancy rates for comparable Airbnbs as well as hotels, search traffic). Airbnb is likely hesitant to reveal too much proprietary data in too granular a form. However, it could build an econometric model using market data as well as individual property history to estimate suggested price ranges. These estimates could be carried out regularly for all properties and dates, and hosts could elect to be notified via email and/or app notification whenever their prices fell above or below the estimated ranges. Hosts like me may even choose for Airbnb to set the price automatically.
#2: Minimize 1- and 2-night vacancies (and the “transaction costs” to fill them)
21 of the 47 vacant nights (45%) were either 1- or 2-night vacancies.
I rarely accept 1- and 2-night stays (~9% of all nights) because the “transaction costs” of completing reservations (e.g., coordinating cleaning, messaging guests) are generally too high to make them worthwhile.
What causes so many 1- and 2-night vacancies? It is challenging for hosts to filter reservation requests to maximize the number of booked nights. Let me describe a common scenario. I’ll be away for 9 nights, leaving on Friday and returning the following Sunday. I receive a reservation request from well-reviewed Guest A for 5 nights, from Saturday to Thursday. Should I accept or reject Guest A’s reservation request? I would obviously prefer a hypothetical Guest B who reserves all 9 nights. I would even prefer a hypothetical Guest C who makes a 3- or 4-night reservation beginning the first Friday or ending on the final Sunday so one easy-to-book time remains. However, when Guest A makes the reservation request, I don’t know if Guest B or C exists.
Airbnb should make it easier for hosts to handle these situations and minimize short, hard-to-fill vacancies. It should also reduce the “transaction costs” of filling these vacancies when they do arise. A few specific suggestions:
- It should be easy for hosts to charge guests lower rates for optimal-length reservations, and higher rates for poorly timed reservations. In my scenario above, Guests A, B and C should be offered different nightly rates (i.e., A > C > B). In the simplest implementation, hosts might have the option to charge more to guests who create 1- and 2-night vacancies on either end of their reservations.
- A better pricing scheme like the above would have the additional benefit of making Instant Book, a feature that allows guests to make reservations without host confirmation, useful. I’ve disabled Instant Book because more often than not it creates small, inconvenient pockets of availability similar to Guest A in the example above
- Airbnb could also include some measure I’ll call “Optimal Availability Usage” in its search ranking algorithms, giving preference to properties with windows of availability that match the durations of guest stays. This would likely work best in deep markets of guests and hosts like New York and San Francisco
- Coordinating cleaning is the single most time-consuming task I face in renting my apartment. I am excited to try Airbnb’s new beta integration with Homejoy that automates scheduling and booking with Airbnb reservations. (I actually discovered the integration while writing this post.) If Homejoy can provide the same quality and trust as my current cleaning person without the back and forth for scheduling, managing reservations of any length will become much easier
In 2013, accepting 1- and 2-night stays would have improved my income by ~16% and, perhaps more importantly for Airbnb, allowed 17 new guests to stay in my apartment (50%+ increase in total guests). The latter would be helpful to Airbnb in achieving its strategic goal of maximizing the number of “5-star stays,” a proxy for the number of customers having great experiences on their platform.
#3: Make taxes less scary
Using Airbnb’s products, it is perhaps too easy to forget that the income hosts earn is subject to taxes. At present, taxes are not mentioned at all in the iOS app (my primary channel for accessing Airbnb), mentioned only in the buried “Payout Preferences” tab in the main web app, and are accessible with lots of legal disclaimers in the FAQs.
In October, after I had already rented my apartment for months and earned $15,000+, Airbnb started prompting me for my taxpayer information by email and through its website. As a responsible taxpayer, I should not have felt surprised. Nevertheless, I did — and I suspect I’m not the only host who feels this way. Most frustrating was how difficult it was to do the 80-20 calculation of how much I owed. Was it 5% of earnings? 50%? The degree of uncertainty was unsettling.
After digging through Airbnb’s FAQs and speaking with my father (coincidentally, a tax accountant and owner of a property management company in Albuquerque), I realized that the news is better than I had feared. According to IRS Publication 527, I am entitled to deduct a proportion of rent, utilities and other “allocated” expenses based on the number of days I used the space for personal vs. rental use. I can also deduct other incremental, Airbnb-only expenses like cleaning, linens, and other supplies. Following this formula, my taxable Airbnb income for 2013 is ~$6,000, far better than the total income of $22,000+.
Helping hosts better understand their taxes surely presents legal issues for Airbnb. However, taxes are so important to hosts’ bottom lines that Airbnb should be more proactive in raising the issue. In short, it should aspire to makes taxes less scary.
Here are some concrete suggestions for Airbnb:
- Prompt hosts for taxpayer information up front — when hosts list their space and/or when they reach their 14-day tax liability threshold. Prompting up front will make taxes feel like less of an unwanted surprise and more of a necessary evil
- Link hosts to 3rd-party sites with clear guidance on these topics. A 3rd-party “Airbnb taxable income calculator” with access to host data via API could automate the analysis in my Google doc. Perhaps Intuit or H&R Block could build this as an on-boarding channel to their tax products
- Default hosts to transfer a portion of earnings to a second account so they can easily save for tax liabilities
Greater transparency on taxes will reduce host anxiety, would likely improve overall host tax compliance, and may encourage new, tax-wary hosts to join the service.
Thanks to Bob Huneycutt and Mike Katchen for comments on this blog post.
